The government has decided to withdraw the 2 per cent equalisation levy on e-commerce supply of goods and services from August 1, 2024 in line with the transitional approach worked out with the US to deal with the levy affecting non-resident digital companies including American entities.

On April 1, 2020, India had imposed an equalisation levy of 2 per cent on amounts received by a non-resident e-commerce operator from e-commerce supply or services. 

As the move affected US digital companies, the following year Washington proposed retaliatory import tariffs of up to 25 per cent on several Indian products to compensate for about $55 million of taxes.

However, the US did not go ahead with the retaliatory action as in November 2021, it reached an agreement with India on the transitional approach for a ‘two-pillar solution’ worked out with 134 other members of the OECD/G20 Inclusive Framework to address the ‘tax challenges arising from digitalisation of the economy’.

“The proposed phasing out of equalisation levy is in line with the global practices pursuant to the pillar 1 solution developed at the OECD G20 inclusive framework,” pointed out Gokul Chaudhri, President – Tax, Deloitte South Asia.

Abolition of 2 per cent equalisation levy is a big give for the Indian government, said Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co. “This increased compliance costs for companies and was difficult to enforce impacting the integrity of the tax. It will be interesting to see how this dovetails into Pillar 1,” Puri said.

However, the 6 per cent equalisation levy under Finance Act 2016, for specified digital services, like online advertising, will stay. 

As the validity of the agreement reached between India and the US in November 2021 was till implementation of Pillar One or March 31 2024, in June this year the two countries decided to extend it till June 30, 2024.

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